Foreign Bribery Update – December 2017

Articles Written by Robert Wyld (Consultant)

This Update covers a range of important developments in Australia and overseas in the area of foreign bribery policy, investigations and regulation to 20 December 2017. These developments will impact on Australian businesses working offshore and reinforce the need to have and to implement an ongoing, pro-active anti-corruption compliance framework within your business.

Please insert this Update behind the Updates tab in your copy of the JWS Foreign Bribery Guide.

Important Developments

The key issues that are covered in this Update include:

  • Australia – First Foreign Bribery Convictions
  • Australia – ASIC False Accounting Prosecution against ex-Leighton Holdings Executives
  • Australia – Proposed New Foreign Bribery and DPA Laws
  • Australia – Proposed Reforms to Private Sector Whistleblower Protection Laws
  • Australia – Senate Review of Foreign Bribery Laws
  • Australia – ASIC Enforcement Review Report on Penalties for White-Collar Crime and Corporate and Financial Misconduct
  • Canada – Abolition of Facilitation Payments Defence
  • France – Sapin II and the first DPA
  • Latin America – Argentina and Corporate Criminal Liability
  • OECD – Enforcement Review 2016 and Phase 4 Report of Australia’s obligations under the OECD Anti-Bribery Convention
  • United Kingdom – Criminal Finances Act 2017 and Guidance
  • United Kingdom – Tesco Ltd DPA
  • United States – FCPA Trends 1 year into the Trump Era
  • United States – FCPA Pilot Program on Self-Reporting
  • International – Individual Liability
  • International – From Panama to Paradise: Lessons to Learn

Australia – First Foreign Bribery Prosecution and Conviction

On 27 September 2017, in R v Jousif; R v I Elomar; R v M Elomar [2017] NSWSC 1299, the NSW Supreme Court sentenced 3 individuals on charges of conspiring to bribe a foreign public official. Two of the offenders were brothers and directors of an engineering, construction and infrastructure company, Lifese Ltd while the third was a facilitator who held himself out as an expert in introducing companies to government and statutory authorities in Iraq. The two brothers were convicted and sentenced to 4 years imprisonment (with a 2 year non-parole period) and a fine of AU$250,000 each while the third offender, the facilitator, was sentenced to 4 years imprisonment (again with a 2 year non-parole period) and with no fine.

The case concerned the payment of approximately US$1 million to entities in Iraq for the purpose of ensuring that commercial contracts were secured in favour of the company. In passing sentence, the Court made the following observations (at [269]-[270] and [313]):

I infer that the offence is difficult to detect. None of the parties to a conspiracy to bribe has an interest in its disclosure. The victim is the nation state whose foreign public officials are to receive a benefit…It is important that the sentence includes an element of denunciation so that those Australians who carry on business overseas appreciate that bribery of foreign officials is as serious and as criminal as bribery of local officials and can never be excused, much less justified, on the basis of a business imperative…Each offender has deliberately flouted Commonwealth law and employed criminal means in the expectation of financial advantage. Their respective criminality is serious and warrants imprisonment to communicate “the censure of society”.

The first foreign bribery prosecution, the Securency bank note printing saga, will finally make it way to trial. The trial is listed to commence before the Supreme Court of Victoria in late January 2018. Assuming the extensive non-publication orders are dissolved for the hearing, then expect some close media scrutiny of the evidence as it unfolds.

Australia – False Accounting Prosecution against ex-Leighton Holdings Executives

In late 2016 and early 2017, ASIC charged Peter Gregg and Russell Waugh with engaging in conduct that resulted in the falsification of the company’s books in contravention of the Corporations Act 2001 (Cth). The trial of the two accused was listed to commence on 27 November 2017. On 29 November 2017, the trial was adjourned to 15 October 2018. Further updates will be provided as they become available.

Australia – Proposed New Foreign Bribery and DPA Laws

On 7 December 2017, the Australian Government tabled before Parliament the Crimes Legislation Amendment (Combatting Corporate Crime) Bill 2017. The reading of the Bill was adjourned to the first sitting of Parliament in the New Year, on 5 February 2018 and has been referred to the Senate Legal & Constitutional Affairs Legislation Committee to consider and report by 20 April 2018.

The Bill includes the following important reforms to Australia’s foreign bribery laws:

  • Amendments to the Criminal Code Act 1995 (Cth) to create new intentional (but not the proposed reckless) foreign bribery offence based upon improper influencing a foreign public official in order to obtain or retain business or an advantage;
  • The creation of a new strict liability corporate offence of failing to prevent foreign bribery; and
  • The introduction of a deferred prosecution agreement (DPA) scheme for certain Commonwealth serious financial offences.

These reforms have been covered in the April 2017 Update. In reviewing the draft Bill, the following important developments should be noted in relation to the foreign bribery offence:

  • The existing foreign bribery offence in section 70.2 of the Criminal Code will be repealed, to be replaced with a new offence of, in substance, providing, offering or causing to offer a benefit  to another person with the intention of improperly influencing a foreign public official (who may be the other person) to obtain or retain business or an advantage;
  • While a similar offence of being reckless as to whether conduct would improperly influence a foreign public official was proposed, that proposed offence is not in the Bill;
  • The Bill outlines the factors a Court is to consider in determining whether influence is improper and importantly, must disregard whether the conduct was:
    • customary, necessary or required;
    • whether there was any official tolerance of the conduct;
    • if a particular business or advantage is relevant, the fact that its value may be insignificant or of any official tolerance to an advantage or whether an advantage may be customary;
  • The strict liability corporate offence of failing to prevent bribery of a foreign public official is as proposed (predicated upon an underlying offence of bribing a foreign public official) with the only defence being that the company had in place adequate procedures designed to prevent the commission of the offence and any associate engaging in the offending conduct; and
  • The Minister must publish a “guidance” on the steps a company can take to prevent an associate from bribing foreign public officials.

The Bill also outlines in more detail the statutory process for the operation of the Commonwealth DPA scheme for certain Commonwealth offences:

  • The Commonwealth Director of Public Prosecutions (CDPP) may enter into a DPA with a company;
  • Criminal proceedings must not be commenced if a DPA is approved unless the CDPP is satisfied an agreement has been contravened or that inaccurate, misleading or incomplete information was provided in connection with the agreement and the entity supplying the information ought to have known that;
  • The Commonwealth offences to which a DPA may apply will include contraventions of:
    • Australia’s anti-money laundering and terrorism financing laws;
    • The Autonomous Sanctions Act 2011 (covering Australian sanctions);
    • The Charter of the United Nations Act 1945 (covering UN sanctions);
    • The Corporations Act 2001, covering:
      • Market manipulation (section 1041A);
      • False trading and market rigging (section 1041B);
      • Dissemination of information concerning illegal transactions (section 1041C);
      • False or misleading statements (section 1041D);
      • Inducing persons to deal (section 1041F);
      • Dishonest conduct (section 1041G);
      • Prohibited conduct concerning insider information (section 1043A); and
      • Falsification of company books and records (section 1307).
    • The Criminal Code, covering:
      • Theft (section 131);
      • Obtaining property or a financial advantage by deception (section 134);
      • Fraud and dishonesty (section 135);
      • Bribery of a Commonwealth public official (section 141);
      • Corruption a Commonwealth public official (section 142);
      • Forgery (section 144);
      • Forgery offences (section 145);
      • Dealing in the proceeds of crime and the anti-money laundering offences (section 400);
      • The use and misuse of financial information concerning obtaining funds, credit or financial benefits (section 480); and
      • False and/or reckless dealings with an accounting document (section 490).
  • A DPA must contain certain terms including an agreed statement of facts, any conditions to be satisfied, the amount of any financial penalty and a consent to the institution of an indictment without any future committal process;
  • A DPA may contain a variety of other terms concerning compensation, the implementation of a compliance program, the payment of costs, the forfeit of benefits and any other term the CDPP “considers appropriate”;
  • The Commonwealth may appoint an “approving officer” (being a former judicial officer of a Federal, State or Territory Court) for a term of 5 years;
  • The approving officer must review and either approve or not approve the DPA, with an approval based on the officer being satisfied the DPA is “in the interests of justice” and is “fair, reasonable and proportionate”;
  • Once a DPA is approved, it must be published on the CDPP’s website in whole or part, and can be redacted in whole or part in the CDPP’s discretion if publication would threaten public safety, prejudice ongoing investigations, or the fair trial of a person or be contrary to an order of a court;
  • Any variation to a DPA must go through the same approval and publication process;
  • There are limits to the admissibility into evidence of documents indicating a DPA was being negotiated or documents created solely for the purpose of negotiating a DPA (but derivative use of information so obtained may still exist); and
  • There are limited rights of a Commonwealth official to disclose any information about a DPA.

There are some transitional amendments to other laws, most notably the Income Tax Assessment Act 1997 (Cth) where the non-deductibility of bribes exists as an offence, the Crimes Act 1914 (Cth) in relation to factors to consider on sentencing and the DPP Act 1983 (Cth) in relation to authorising the CDPP to negotiate, enter into, administer, and issue directions or guidelines concerning the negotiations for, the entering into and the administration of a DPA.

Given that these proposed amendments have been on the Parliamentary table and under extensive public consultation for many months, it is hoped these reforms will be enacted in the first half of 2018 after further review by the Senate Legal & Constitutional Affairs Legislation Committee.

Australia – Proposed Reforms to Private Sector Whistleblower Protection Laws

In September 2017, the Parliamentary Joint Committee on Corporations & Financial Services published its Report on whistleblower protections. The Report contained a number of important recommendations for reform including a wholesale review of private sector whistleblower protections.

On 23 October 2017, the Commonwealth Government published an Exposure Draft Treasury Laws Amendment (Whistleblowers) Bill 2017 for public consultation.

However, three important features from the Report not contained in the draft Bill are that:

  • There is yet no independent authority to represent whistleblowers;
  • There are no rewards (or a US-style bounty) to be paid to whistleblowers; and
  • For compensation, a whistleblower must still bring his or her own civil claim and run the gauntlet of litigation against a well-funded employer.

On 7 December 2017, the Australian Parliament considered a revised whistleblower protections bill, the Treasury Laws Amendment (Enhancing Whistleblower Protections) Bill 2017. This Bill contains the formal changes proposed to enhance whistleblower protections which are to be included in the Corporations Act 2001 (Cth).

The key changes set out in the December 2017 Bill are as follows:

  • The Bill, once enacted, will apply from 1 July 2018 but will cover conduct occurring before 1 July 2018;
  • A disclosure may be made by an eligible whistleblower to an eligible recipient where the discloser has reasonable grounds to suspect that the information indicates that a company (or officer or employee) or a related body corporate has engaged in conduct that constitutes a contravention of any Commonwealth law that is punishable by imprisonment for a period of 12 months or more, or which represents a danger to the public or the financial system;
  • An eligible whistleblower can be a current or former officer, employee, or person who supplies goods and services to the company, an associate of a company and in respect of any individual, a dependent or spouse;
  • Emergency disclosures are permitted to a third party (a journalist or a member of a Parliament of the Commonwealth, State or Territory) if a disclosure has been made, a reasonable period has passed, and the discloser has reasonable grounds to believe that there is an imminent risk of serious harm or danger to public health or safety, or to the financial system if the information is not acted on immediately;
  • Confidentiality of a whistleblower’s report and his or her identity is reinforced;
  • Compensation rights are set out and while a whistleblower must still bring an individual claim, there are provisions reversing the onus of proof for certain matters and cost protections (so no adverse cost order can be made unless the discloser acted without reasonable cause);
  • A public company and a large proprietary company must have a whistleblower policy in place (by 1 January 2019) that covers a range of matters including information about a whistleblower’s rights under the new laws;
  • Enhances the protections to whistleblowers against retaliation and victimisation; and
  • Provides protection from civil and/or criminal liability in connection with the subject matter of a disclosure made under the new laws.

While there are still some serious criticisms of the scope of the protections, particularly the high threshold test for disclosures to third parties, being “an imminent risk of serious harm or danger to public health or safety, or to the financial system if the information is not acted on immediately” (see section 1317AAD(1)(c) of the draft Bill), which may result in further amendments (see “Whistleblower laws need to be fixed”, Adele Ferguson, The Australian Financial Review 11 December 2017), the Bill remains a good start to tackle the long-standing deficiency of adequate and robust private sector whistleblower protections in Australia.

While the Bill remains under consideration, it is timely for all large listed and proprietary companies to revisit their internal policies and procedures to bring them into line with the expected changes, which have cross-party support in the Parliament. They will be required to have in place a whistleblower policy that reflects the new laws by 1 January 2019.

The importance of addressing these issues is highlighted by Prof AJ Brown who led the research project, Whistling While They Work 2 (in conjunction with ASIC). In the Project’s Preliminary Report published in July 2017 (at http://www.whistlingwhiletheywork.edu.au), Prof Brown found out of 702 organisations surveyed, almost 23% reported “having no specific strategy, program or process for delivering support and protection to staff” with another 26.8% relying on “setting up such a strategy as needed, rather than having any standing support program”. The time for corporate complacency in the private sector over whistleblowers in Australia is fast disappearing. 

Australia – Senate Review of Foreign Bribery Laws

During the second half of 2017, the Australian Senate Economics Reference Committee reactivated its review of Australia’s foreign bribery laws. While a report was to be published by early December 2017, that has now been pushed back to 7 February 2018.

Australia – ASIC Enforcement Review Panel Report on Penalties for White Collar Crime

In October 2017, the Australian Government announced a consultation process into the level of penalties for white collar crime. The ASIC Enforcement Review Panel published its Position Paper 7, Strengthening Penalties for Corporate and Financial Sector Misconduct, outlining key issues that it thought should be addressed by changes in the law (see the Paper at https://static.treasury.gov.au/uploads/sites/1/2017/10/c2017-t232150.pdf). Consultation has closed and it is hoped reforms occur early in 2018.

The key issues include the following:

  • The effect of the key positions put in the paper would be to expand the range of civil penalty provisions and to increase maximum civil penalty amounts in the Corporations Act 2001 (Cth) and National Consumer Credit Protection Act 2009(Cth) (Credit Act) to:
    • for individuals, 2,500 penalty units ($525,000); and
    • for corporations, the greater of: 12,500 penalty units ($2.625 million), or three times the benefit gained (or loss avoided) or 10% annual turnover.
  • This would mean increases from $200,000 (individuals) and $1 million (corporations) in the Corporations Act and 2,000 penalty units ($420,000) for individuals and 10,000 penalty units ($2.1 million) for corporations in the Credit Act.
  • To broadly align with planned changes to the Australian Consumer Law, penalties in the Australian Securities and Investments Commission Act 2001 (Cth) would increase from 2,000 penalty units ($420,000) for individuals and 10,000 penalty units ($2.1 million) for corporations to:
    • For individuals, 2,500 penalty units ($525,000); and
    • For corporations, the greater of: 50,000 penalty units ($10.5 million), three times the benefit gained (or loss avoided) or 10% annual turnover.
  • In addition to increasing civil penalties ASIC would be able to seek disgorgement remedies (removal of benefits illegally obtained or losses avoided) in civil penalty proceedings brought under the Corporations, Credit and ASIC Acts.
  • Maximum terms of imprisonment would be increased for a range of offences. The most serious Corporations Act offences, given the nature and/or consequences of the offending (many involving dishonesty), will increase to the highest penalties available under the Act: 10 years imprisonment, 4,500 penalty units ($945,000) or 3 times benefits (individuals) and 45,000 penalty units ($9.45 million) or 3 times benefits or 10% annual turnover (corporations).
  • Maximum fine amounts for other criminal offences would also increase, and be standardised by reference to a formula based on length of available prison term:
    • Maximum term of imprisonment in months multiplied by 10 = penalty units for individuals,;
    • Multiplied by a further 10 for corporations.
  • For strict liability offences, the lowest level fines would increase and ASIC would be able to deal with these offences through the existing penalty notice regime as an alternative to prosecution.
  • ASIC would also be able to deal with a wider range of offences through infringement notice regimes.

While substantially increased penalties have been on the horizon for some years, this is a consistent review to look at the spectrum of penalties open to ASIC in the corporate and financial sectors and will do much to give ASIC extra teeth, assuming it is prepared to press for such penalties to be imposed.

Canada – Abolition of Facilitation Payments Defence

As of 31 October 31, 2017, facilitation payments will no longer be excluded from the bribery offence under Canada’s Corruption of Foreign Public Officials Act (the CFPOA).

While the proposal to abolish facilitation payments under Canadian law was first proposed in early 2013, the delay in its implementation was to allow businesses adequate time to amend their practices and procedures.

France – Sapin II and the First DPA

In December 2016, France enacted the laws known as Sapin II. which brought together offences from the US FCPA and the UK Bribery Act together with a scheme for deferred prosecution agreements (the “convention judiciaire d’intérêt public”).

On 14 November 2017, HSBC became the first company to agree to a DPA under the new regime. The High Court in Paris approved a €300 million settlement to resolve claims of unlawful banking, financial soliciting and aggravated money laundering. While French companies have generally been resistant to voluntarily disclosing illegal conduct and preferring to let cases meander slowly through the French judicial system, these new laws may result in a change of heart, particularly where cross-border risks suggest a more nuanced response to the inquisitive French magistrates.

Latin America – Argentina and Corporate Criminal Liability

Latin America, particularly Brazil and Argentina continue to power along in relation to anti-corruption initiatives. The Operation Car Wash in Brazil continues to ensnare foreign companies, business leaders and politicians.

On 8 November 2017, the Argentine Congress passed the Law on Criminal Liability of Legal Entities. Once the President signs the law, it will become effective 90 days after publication in the Official Gazette.

Under the new Law, a company will be criminally liable for certain corruption-related offences, including bribery, influence-trafficking, conduct incompatible with the exercise of public duties, illegal levies, unlawful enrichment of public officials and employees and false accounts. A company will be held liable for these offences by direct or indirect conduct. Liability may be avoided if the individual engaged in the conduct acted exclusively for his/her own benefit and with no benefit to the company. The Law allows the company to negotiate a resolution with the prosecutor (referred to as an Effective Collaboration Agreement or Acuerdo de Colaboración Eficaz) subject to certain conditions. This includes full disclosure of the company’s conduct and that of all relevant individuals.

OECD – Enforcement Review 2016 and Phase 4 Report of Australia’s Obligations under the OECD Anti-Bribery Convention

On 14 November 2017, the OECD Working Group on Bribery released its 2016 Data on Enforcement of the Anti-Bribery Convention. While the report focused on the degree of international cooperation, it made some interesting findings:

  • At least 443 individuals and 158 entities have been sanctioned in criminal proceedings for foreign  bribery from 1999 to the end of 2016 with at least 125 individuals sentenced to terms of imprisonment for foreign bribery;
  • At least 121 individuals and 235 entities have been sanctioned in criminal, administrative and civil cases for other offences related to foreign bribery, such as money laundering or false accounting in 8 member States;
  • Over 500 investigations are ongoing in 29 member States with prosecutions ongoing against 125 individuals and 19 entities in 11 member States;
  • While in Australia, to the end of 2016, there was still no sanctioned individual or entity for any foreign bribery offence or other associated offences (although it seems odd that these figures do not include the criminal prosecution for false accounting and conviction of the former Securency CFO, David Ellery and more obviously, the 2017 convictions in the Lifese prosecution).

Against this backdrop, on 19 December 2017, the OECD Working Group on Bribery published the Phase 4 Report on Australia and its performance in complying with the OECD Anti-Bribery Convention. The OECD recognised the substantial steps taken by the Australian Government to improve its framework for detecting and investigating foreign bribery (with 19 ongoing investigations and 13 referrals under evaluation), that enforcement had increased markedly since the 2012 Phase 3 Report and a number of legislative and institutional reforms have or are designed to strengthen the focus on targeting foreign bribery.

The Phase 4 Report makes the following recommendations for the future:

  • To address the risks that the proceeds of foreign bribery could be laundered through the Australian real estate sector;
  • To enhance private sector whistleblower protections;
  • To adequately resource the AFP and CDPP;
  • To pursue criminal charges against companies for foreign bribery and related offences (false accounting, money laundering and tax evasion); and
  • To continue to encourage companies, particularly SMEs, to develop and adopt adequate internal controls, ethics and compliance programs to prevent and detect foreign bribery.

Overall, the Phase 4 Report illustrates that the Australian Government is recognising the importance of tackling foreign bribery and corruption, is strengthening Australia’s laws to prosecute companies and individuals, is recognising the importance of enhanced whistleblower protections (to promote the disclosure of illegal conduct) and ultimately, and this is where the test lies, to adequately resource and staff the AFP and the CDPP to go after foreign bribery in a manner now being adopted by their overseas counterparts.

United Kingdom – Guidance under the Criminal Finances Act 2017

As of September 2017, the Criminal Finances Act 2017 will be fully implemented in the UK.

Key features of the Act include the following:

  • A business can be liable for the conduct of an employee or contractor helping or assisting the business to evade tax (absent reasonable procedures in place to prevent the conduct);
  • The Act applies to any business based in the UK or having a nexus with the UK;
  • The Act covers tax, and its evasion wherever in the world the tax may be owed.

The UK Treasury issued a Guidance on the corporate offence of failing to prevent the criminal facilitation of tax evasion. The Guidance sets out a principled approach similar to the Guidance under the Bribery Act, so the proactive measures expected from a business will come as no surprise.

United Kingdom – The Tesco Stores Ltd DPA

On 10 April 2017, the UK Serious Fraud Office announced that a deferred prosecution agreement (DPA) had been entered into with Tesco Stores Ltd. The case involved certain accounting irregularities the subject of investigation by the Financial Conduct Authority.

Publication of the relevant judgments is stayed until the completion of the criminal trials of three individuals (Christopher Bush, who was managing director of Tesco's UK operations, the finance director Carl Rogberg and the food commercial director John Scouler). What can be reported is that the company will pay a “total exceptional charge of £235m in respect of the DPA of £129m, the expected costs of an FCA compensation scheme of £85m, and related costs” (see https://www.sfo.gov.uk/2017/04/10/sfo-agrees-deferred-prosecution-agreement-with-tesco).

United States – FCPA Trends 1 Year into the Trump Era

Before and after President Trump was elected as US President, there was speculation that a new administration may change the course (and perhaps, the focus) of investigative agencies, away from corporate misconduct to other areas of interest. That appears, from some of the latest information out from well-respected US firms, not to be the case.

 

The Table above reflects the findings published by Miller & Chevalier in Washington DC, where the respected authors of their FCPA Autumn Review 2017 make the following observations:

Overall, the agencies' activity during the first ten months of the Trump administration indicates an absence of any significant departure from previous FCPA enforcement trends. Statements by senior DOJ and SEC officials relating to the statute continue to support robust anti-corruption enforcement. For example, following similar pronouncements from the DOJ during the first part of the year, the Chair of the SEC affirmed in early September 2017 that there is not going to be some "dramatic shift in priorities at the SEC" related to FCPA or other enforcement areas, and made similar statements in a congressional oversight hearing later the same month.  

In public remarks in September and October 2017, DOJ officials, including Deputy Attorney General Rod Rosenstein, announced that both the "Yates Memorandum" (the controlling guidance for DOJ enforcement policy related to companies) and the FCPA "pilot program" were under review and that changes could be announced later in the fall of 2017. The results of that review have not been publicly reported to date, and some members of Congress and commentators have raised concerns that the contemplated changes could weaken the DOJ's enforcement posture. Given various statements by both DOJ and SEC officials, it is likely that any such revisions will reflect a continued focus on enforcement against individuals and actions that companies should take to show cooperation for purposes of the exercise of prosecutorial discretion and the application of mitigating factors. For example, in a speech to the U.S. Chamber of Commerce's Institute for Legal Reform on October 25, 2017, the Deputy Attorney General stated that, "[w]e are establishing a Working Group on Corporate Enforcement and Accountability, which will offer recommendations on promoting individual accountability and corporate cooperation," though he offered no further details.

This brings into focus the trends of US authorities against individuals. Again, the information from Miller & Chevalier is illustrative.

 

The Table above reflects the views of Miller & Chevalier, to the effect that the number of prosecutions against individuals, and the US Government desire to hold individuals accountable, will continue on.

United States – FCPA Pilot Program on Self-Reporting

On 29 November 2017, the Us Department of Justice (DOJ) announced that with some updates, its pilot program established in 2016 to encourage companies to self-report FCPA offences will be made permanent.

On 5 April, 2016, the DOJ published (through its Fraud Section) the Foreign Corrupt Practices Act Enforcement Plan and Guidance, under which companies could receive a reduction in criminal penalties of up to 50%, avoiding a compliance monitor and even a declination to prosecute (see the policy at https://www.justice.gov/criminal-fraud/file/838416). Under the amended program, companies may avoid paying any criminal penalties for FCPA offences and formal prosecution in certain circumstances, but will still have to disgorge profits obtained from the corrupt conduct and endure public disclosure of the conduct and the offence. In instances where the conduct does lead to prosecution, companies may still receive up to a 50% reduction in the low end of the penalty range established under the US Sentencing Guidelines and may forego the requirement of a corporate monitor. Even companies that do not self-report, but that later cooperate and remediate, may receive credit in the form of a reduced penalty. It is intended that the program will form part of the United States Attorneys’ Manual, guiding federal prosecutors on a broad range of topics and in particular, how to give credit to self-reporting companies.

In a speech to the 34thInternational Conference on the Foreign Corrupt Practices Act on 29 November 2017, the US Deputy Attorney General, Rodney Rosenstein made these observations, in announcing the updated program as new policy (see https://www.justice.gov/opa/speech/deputy-attorney-general-rosenstein-delivers-remarks-34th-international-conference-foreign):

Those cases and others like them reinforce the Department’s commitment to hold individuals accountable for criminal activity…Effective deterrence of corporate corruption requires prosecution of culpable individuals.  We should not just announce large corporate fines and celebrate penalizing shareholders… I know that previous corporate fraud policies often were identified by the name of the Deputy Attorney General who wrote the memo.  It is nice to be remembered. But one of my goals is not to be remembered for writing a memo.  After spending nearly three decades trying to keep track of prolix memos, I want the Department to issue concise policy statements.  Historical background and commentary should go in a cover memo or a press release.  In most instances, the substance of a policy should be in the United States Attorneys’ Manual, and it should be readily understood and easily applied by busy prosecutors…So, the FCPA Corporate Enforcement Policy I am announcing today will be incorporated into the United States Attorneys’ Manual.

The new Policy makes it clear that the DOJ wants to incentivise companies to self-report and that the focus of the authorities will be on individual responsibility, or as the Deputy Attorney General observed, “…It makes sense to treat corporations differently than individuals, because corporate liability is vicarious; it is only derivative of individual liability”.

International – Individual Liability

Over the last few years, it has become increasingly clear that while regulators and prosecutors want companies to voluntarily disclose their corporate misconduct and pay the price, one price that must be paid is letting individuals go. The conduct of individuals, as noted above on the US trends, is what attracts the eye of the prosecutor in holding accountable those responsible for corporate misconduct.

Here is an example of the recent activity where individuals have been charged and/or convicted or are in the process of contesting charges, not just in the US, but more widely:

United States

  • Ongoing pleas of guilty in the FIFA corruption scandal throughout 2017;
  • Conviction of Amadeus Richers, a Brazilian citizen in relation to bribes paid to Haiti Telco (the ninth person to have been convicted) (July 2017);
  • Conviction of Chinese billionaire real estate developer Ng Lap Seng for paying illegal bribes and gratuities, and conspiring to commit money laundering in connection with the construction of a multi-billion dollar U.N. conference centre in Macau with sentencing scheduled for December 2017 (July 2017);
  • Indictment of Joseph Baptiste for bribery and money laundering with Baptiste allegedly seeking bribes to be paid to Haiti officials (Oct 2017);
  • Plea of guilty by Fernando Ardila Rueda in the PDVSA case concerning bribery of public officials in Venezuela (Oct 2017);
  • Pleas of guilty by 4 persons in the Rolls-Royce bribery case in relation to contracts in Kazakhstan and the indictment of another person (outside the US) (Nov 2017);
  • Pleas of guilty by 2 SBM Offshore executives in connection to bribes paid to officials in Brazil, Angola and Equatorial Guinea (Nov 2017);
  • Arrest of Patrick Ho (a Hong Kong resident) and Cheikh Gadio (a former foreign minister of Senegal) in connection with an alleged scheme to bribe officials in Chad and Uganda on behalf of a Chinese company to secure contracts (Nov 2017).

United Kingdom

  • Conviction of Peter Chapman former manager of Innovia Securency’s Africa office for the payment of bribes to Nigerian officials to secure bank note printing contracts (May 2016);
  • Charging of the UK division of German logistics and freight company Bertling and five persons with conspiracy to pay or accept bribes in relation to a North Sea oil exploration project (May 2017);
  • Charging of 2 persons, Ziad Akle and Basil Al Jarah with conspiracy to pay bribes to secure contracts in Iraq, arising from the Unaoil inquiry (Nov 2017); and
  • Charging of 2 former executives of Dutch oil services firm SBM Offshore, Paul Bond (former senior sales manager) and Stephen Whiteley, for allegedly paying bribes via Unaoil to secure contracts in Iraq (with a third individual, Saman Ahsani (former vice president) charged and subject to extradition request to Monaco).

Germany

  • Arrest of executives associated with Volkswagen arising out of the emissions investigation (mid-2017).

Australia

  • Conviction of 3 persons (2 directors) and one agent of Lifese Ltd on charges of conspiracy to bribe a foreign public official, sentenced to 4 years imprisonment (non-parole period of 2 years) and fines of AU$250,000 each against the 2 directors (Sept 2017);
  • Charges against a number of former employees or agents of Securency International Pty Ltd and Note Printing Australia Pty Ltd (then subsidiaries of the Reserve Bank of Australia) including conspiring to bribe foreign officials and some charged with false accounting in relation to payments made in connection with foreign agents in order to secure banknote printing contracts with central banks in Malaysia, Indonesia, Vietnam and Nepal, at various dates between late 1999 and early 2004, trial listed for late January 2018; and
  • Charges against 2 former executives of Leighton Holdings (Peter Gregg and Russell Waugh) in connection with alleged false accounting transactions in contravention of the Corporations Act (with the trial adjourned to October2018).

This trend reinforces the need for individuals within companies (in particular, directors, executives and management) to proactively address their corruption and bribery risks. It is they that will be held accountable if things go wrong and their conduct comes under question. Prosecutors will not only ask you “what did you do?” but now, increasingly, they are asking “what should you have done?” and “why did you not do something?”

International – From Panama to Paradise, Lessons to Learn

In April 2016, the world learned about a rather obscure law firm in Panama, Mossack Fonseca that had been attending to the offshore needs of clients (large and small companies, trusts, politicians, socialites and just the plain old-fashioned wealthy) for many years.

In late 2017, Panama moved to Paradise where a rich history of client dealings of a well-known Bermuda law firm, Appleby, was published, along with client information, for all to see. Both firms appeared to have suffered from cyber security failings as their confidential information was removed, downloaded by persons unknown (at least publicly) and presented to the International Consortium of Investigative Journalists. From Panama to Paradise – what does it all mean for business and lawyers and where are governments going?

We hear much from politicians and tax officials saying that companies should pay their “fair” or “right” tax. Indeed, in an interview with the Commissioner of the Australian Taxation Office, Chris Jordan, the current Head of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration, (focused on anti-tax avoidance practices), Mr Jordan told The Australian (on 30 November 2017) the following:

If the right tax is not collected from multinationals, it “deprives Australians of the funds needed for vital infrastructure and services” he says. “If you come here as a foreign company and you use our infrastructure, we’re a good marketplace for you – you should pay tax on the value you create here.”

The difficulty in all of this discussion is that the tax laws are created by politicians and governments and they have encouraged, condoned or otherwise permitted complex offshore structures to be used by business for entirely legitimate business reasons in reducing the amount of tax payable in one country or another. Taxpayers are required to pay what tax they are legally required to pay. It is governments that create the environment for business to engage in offshore commercial structures, often part and parcel of an increasingly global economy. While lawyers and accountants are often called upon to advise upon, create and structure offshore commercial activities, it is likely the vast majority of transactions are entirely legal. Whether it (the structure) is then used by the client for other, potentially illegal purposes, does not of itself make the conduct establishing the structures unlawful. It is worth remembering the sage words of Lord Tomlin in the Duke of Westminster’s case, highlighted so forcefully by Martin Kenny in his commentary published in the FCPA Blog (17 November 2017, at http://www.fcpablog.com/blog/2017/11/17/martin-kenney):

The intersection between law and morality is traditionally reserved for the most heinous of crimes. Lawful tax avoidance is neither immoral nor unlawful. It does not come close to that intersection. In Duke of Westminster v Commissioners of Inland Revenue [1936] AC 1 (House of Lords), Lord Tomlin held that:

Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow tax-payers may be of his ingenuity, he cannot be compelled to pay an increased tax.

Added to this mix of ethics and law is the role that lawyers (external law firms and internal corporate counsel) play in establishing and advising upon such structures. While Mr Jordan might describe his former colleagues in the accountancy firms as having “been writing stories for so long, they’re starting to believe their (own) fairytales”, lawyers in many jurisdictions are under professional duties to either act in the interests of justice and the court or to their client as the primary duty. Where that duty is called into question by the client’s instructions or conduct, the lawyer ought to advise the client as to how he, she or it should act legally and absent any change, to cease acting. Whether there are reporting obligations on lawyers will depend upon domestic laws. Obligations to report suspicious transactions under anti-money laundering laws are common. However, the traditional duty of a lawyer to keep his client’s information confidential is a corner-stone of the role of the legal profession and the right of any client to receive frank legal advice without fear of its disclosure.

While lawyers want to maintain their ability to give fearless confidential advice, and clients no doubt the ability to pay only the tax they are legally obliged to pay, the power of social media and the public push for “fair” tax means disclosures about the tax affairs of the rich and famous (and infamous) will continue. Cyber security breaches will inevitably occur and information once considered safe is now less safe than ever. Lawyers and business need to appreciate that the risks of disclosure are greater now than ever before. The international regulatory landscape for business, for tax liabilities and the cause celebre of “punishing” multinationals for legally minimising their tax is not going away. Nor are the challenges faced by lawyers in how to give advice on transactions and structures that on one view are perfectly legal, yet on the other hand, offend against increasingly popular “ethics” of how business should behave.

Important Disclaimer: The material contained in this article is comment of a general nature only and is not and nor is it intended to be advice on any specific professional matter. In that the effectiveness or accuracy of any professional advice depends upon the particular circumstances of each case, neither the firm nor any individual author accepts any responsibility whatsoever for any acts or omissions resulting from reliance upon the content of any articles. Before acting on the basis of any material contained in this publication, we recommend that you consult your professional adviser. Liability limited by a scheme approved under Professional Standards Legislation (Australia-wide except in Tasmania).